LFP036 – The Direct Lending Model with Chris Rieche CEO of iwoca

I am delighted to be joined by Chris Rieche CEO and co-founder of iwoca. Iwoca is a Fintech lender but not a P2P. They raise finance and then can lend it out themselves – a direct lending model which has many advantages as we will hear.

iwoca lends up to £100k to small businesses in the UK, Poland, Spain and Germany at rates varying from around 13-40% p.a and has around 100 employees in London.

It has also this year made a landmark partnership with the giant Alibaba to offer a trade finance product and raised £20m in equity capital this year.

Chris and co-founder and CTO James Dear founded iwoca in 2011 right back in the early days of the Fintech lending movement.

In this episode we discuss:

– whether the amount of ping-pong is going down in Fintech 🙂

– Chris’ journey and motivation to start iwoca

– why iwoca chose the direct lending model and not P2P or a fund structure

– the gap in the market for small business lending (typically companies of less than a handful of employees and turnover of £100k-£2m)

– banks in contrast tend to start to classify companies as a business customer only above £2m turnover; below this they would tend to treat the business as a consumer that has a business attached to it

– the bottleneck in small business lending – not just the failure of quantitative easing to feed through into SME lending by banks but the cost of just doing a loan [and naturally less profit in small loans]

– the focus on lowering the cost of underwriting small deals for small companies; by focusing on smaller companies they have to make an extra special effort to make the cost of underwriting as small as they can

– the emphasis on being able to assess the risk in small companies

– an explanation of how they assess this risk cheaply and quickly whilst still doing it well (note that in the case of direct lending the money at risk is iwoca’s – they are principals not agents)

– their attitude to the length of loans traditionally made by banks

– the speed with which they can lend moeny out compared to the marketplace model

– a discussion of the irrelevance of this very “Fintech 2014” word of “gamification” – in the world of business folks are too busy doing their business to play games or work out the best strategy in games; the advantage of a direct price [cf Kantox FX rates in LFP0ZZ]

– the desire of iwoca to provide finance at the point of need of the customer – embedded in the day to day business of a company (in this context note the Alibaba

– iwoca do not take charges over assets (how useful are 3,000 pairs of shoes eg?) but take personal guarantees as a measure of the commitment of the owners to repay the loan

– the connection with Commerzbank and the value of banks in helping them